Sports exemption - subsidiaries do not automatically qualify as eligible bodies

The Upper Tribunal dismissed an appeal by St Andrews College, Bradfield (the College) on the issue of the VAT treatment of supplies of sporting services made by two of its subsidiaries - Developments (D) and Enterprises (E), both of which successively made supplies of sporting services to individuals.
They were part of the College’s VAT group, and it had argued that its subsidiary companies should be viewed as "eligible bodies", who are able to make exempt supplies of sports facilities because they were wholly owned by the College, which is itself a not-for-profit body and, they had entered into deeds of covenant agreeing to pay annually to the College, an amount equal to their profits as computed for corporation tax.  HMRC won the appeal at the First Tier Tribunal (FTT). The FTT disagreed with the College.  It concluded that the subsidiary companies were not eligible bodies. The College appealed to the Upper Tribunal (UT). In its decision, the UT agreed with the FTT’s conclusions. 

Why does it matter?
This case concerns the sporting services exemption, which requires the supplier to be an eligible body. This decision makes it clear that in order for an entity to be accepted as being an eligible body, it must have in its constitution, the requisite clauses that prohibit, or restrict profit distribution.  It is important that all suppliers that rely on this exemption, as well as those seeking to rely on it, should review their Memorandum and Articles of Association to ensure that they contain the required restrictions.

For further information about this case, or to discuss its implications for your organisation, please contact Thomas Mobee on 020 7556 1320, or your usual Buzzacott contact.

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